Alphabet and Microsoft report strong cloud growth amid rising AI spending

Alphabet and Microsoft said their latest earnings showed robust growth in cloud services as demand for artificial-intelligence offerings expands. Alphabet reported third-quarter revenue of $127.6 billion, a 25 % year-over-year increase, and said Google Cloud revenue more than doubled to $30.7 billion, up 103 % from the prior year. Microsoft posted fiscal first-quarter revenue of $92.3 billion, a 19 % rise, with Azure cloud revenue climbing 48 % and overall Microsoft Cloud revenue up 30 % to $63.9 billion.

"Our AI infrastructure and solutions are the major drivers for Cloud growth, and our customers see us as the leading provider here, so there’s huge demand," Alphabet CEO Sundar Pichai said on the earnings call.

"We are working hard to bring more capacity online to meet this long-term demand," Pichai added.

Alphabet expects capital expenditures to rise sharply, projecting $195 billion to $205 billion for the current year and targeting a significant increase in 2027. The company spent about $51.4 billion on capital outlays in the third quarter, more than double the amount a year earlier, largely for AI-related infrastructure. CFO Anat Ashkenazi noted that Google Cloud could face near-term margin pressure as it relies on third-party computing capacity.

Microsoft highlighted similar AI-driven demand, noting that its cloud business continues to expand while the firm also offers voluntary buyouts to a portion of its workforce as part of broader restructuring efforts.

Both firms see a growing commercial remaining performance obligation, a metric of contracted future revenue, rise 73 % to $677 billion, underscoring the scale of anticipated AI-related services.